“They (Republicans) want to borrow another $700B and use it to give tax cuts to millionaires and billionaires.” - President Barack Obama
There’s a lot of misleading language around Washington these days about middle and upper classes and high incomes and millionaires and billionaires. I never hear the words “lower class,” but, if there are middle and upper classes, there must be a lower class as well. I guess it’s just not politically correct to mention it. In any case, there are a few points that need to be clarified if we are to have an honest discussion and try to avoid nonsensical statements such as the president’s quote above given as a reason for raising taxes on families earning more than $300,000 a year.
Income and wealth don’t necessarily have a lot to do with each other. Many who earn $1M in a year are far from being millionaires, at least partly because at least 40% of such an income already goes immediately to various taxes including income taxes, and because such persons often spend more than they earn or make risky investments. Their incomes often fluctuate wildly depending on stock market performance or timing of stock options. Sometimes they die broke.
On the other hand, families or individuals with moderate or even low incomes for many years often become millionaires through frugality, wise investing, and maybe a little good luck. And those who have exercised such personal responsibility are not necessarily affluent because, in today’s interest rate environment, many millionaires have very low incomes, pay little or no income tax, and are forced to spend their principle for living expenses which is good because it means the rest of us don't have to pay their bills. The safer investments such as short-term bond funds and money market funds are paying zero to 1.5% a year, so an investment of a million dollars will generate, at most, $15,000 a year in safe income. In other words, a million dollars is not what it was in the days of John Baresfoot Tipton. It is not the right of government to judge any such individuals, rich or poor, based on their wealth or income, or to take from one and give to another as a matter of "fairness" as President Obama has frequently advocated.
Many families earning in the neighborhood of a half million dollars a year consist of two college educated professionals with solid careers, several years of experience, an expensive home with a big mortgage payment, two to four children in private schools, little or no savings, and high sales and real estate and state income tax bills, who are probably still paying a third of their income in federal income taxes. They have little or no job security and lots of obligations, admittedly of their own making. I don’t expect to generate any sympathy for such folks, but we need to remember that they also build homes, buy a lot of stuff, eat at a lot of restaurants, give to charity, go to theaters and sports events, use valet parking, buy cars and groceries and furniture and art and electronics, etc., and basically do a heck of a lot to keep the economy going. And the reason they usually end up at the head of the line when there are income tax cuts is because they pay most of the income taxes. The argument that they can afford to pay more is no justification for raising their taxes to support out-of-control federal spending in the interest of “fairness.”
Many of those upper class earners are business owners and operators and are responsible for lots of jobs. Even if they show up on some list as “wealthy,” there is a good chance that most or all of their wealth is tied up in their business and at the mercy of the economy, the competition, government regulation, and various market forces beyond their control.
Millionaire and billionaire are two entirely different categories. A millionaire at age 65 can easily spend all his or her resources in the retirement years on health care, nursing home care, family problems, liabilities, and other unavoidable expenses and die broke. A billionaire, on the other hand, can spend 10 million dollars a year for a hundred years before running out of money…even assuming no interest. Billionaires, like long term senators and representatives, are often persons out of touch with economic realities to whom money has become essentially meaningless and inconsequential and who therefore see no reason not to increase taxes. Billionaires are often generous with their money and sometimes waste it in ego driven, job creating, political campaigns or risk it in big business endeavors that, if successful, create thousands of jobs. Many are anxious to sign pledges to give away most of their money. That’s no big deal. If I had a billion dollars, I’d be more than happy to spend $950M (95%) of it to promote things I believe in and help those I feel sympathy for.
Here’s the main point: Billionaires, millionaires, and families making more than $300,000 a year are in entirely different categories and have nothing to do with each other, economically speaking, and lumping them together and demonizing them as “the rich” and punishing them with arbitrarily higher taxes is nothing more than class warfare, and it’s not helpful to the United States of America or to its economy.
You can hear the president making the statement in quotes above here.